Nigeria’s current fiscal crisis has been blamed on the inability of the government to get serious and frontally confront its revenue challenge, which has driven the country into some significantly elevated debt levels and developmental funding to a precipice.
At 7.5 percent, Nigeria’s consolidated government revenue-to-GDP ratio remains among the lowest globally. At the same time, the fiscal deficit is expected to remain high at 6.1 percent of GDP, largely due to costly petrol subsidies and limited tax revenue collections, according to the International Monetary Fund (IMF).
The IMF projection would be higher than the government’s new figure of 3.99 percent for 2022 and also twice the 3 percent threshold set by the Fiscal Responsibility Act. This would also be the highest since the 1990s.
The total debt stock as at the first quarter of 2022 rose to N41.60 trillion from N39.56 trillion in December 2021 – a N2.04 trillion increase in just three months.
As at the end of 2021, debt service to revenue ratio was 76.0 percent, but may have jumped to about 80.0 percent by the first quarter of 2022, according to financial experts.
While authorities are quick to blame the tight fiscal conditions, the negative impact of COVID-19 pandemic on the economy, coupled with the ongoing Russia -Ukraine war, experts say government has not shown enough commitment to retool its revenue strategies, especially at a time when oil prices have rallied considerably.
Zainab Ahmed, minister of finance, budget and national planning, lamented recently that a double whammy of fuel subsidies and low revenues has put the country at a very difficult position where the government would have to either take tough decisions or the economy may sink further.
But Tope Fasua, a renowned economist and CEO of Global Analytics Consulting, told BusinessDay that Nigeria’s fiscal managers were reluctant to take those tough decisions mainly due to fears of hurting self-interests.
He said: “When we are talking of revenue, we are not talking of just taxes; we are talking of import duties, rates, rents, fees, fines, etc. Everything the government is entitled to collect should be collected. And since the fiscal authorities are not ready because they are emasculated by political interests, this is what you get. So it’s bad enough, and it has got to an existential level that it’s a matter of survival for Nigeria.
“But they shouldn’t come with the idea that all we have is a revenue challenge; we also have an expenditure challenge in terms of what they spend money on, which is where they lose credibility because people don’t trust them to use the monies well; so they are not paying.”
According to him, almost every company is underpaying company income tax or petrol proceeds tax.
“So we have a revenue challenge; we have an expenditure challenge. We have a budgeting challenge; we have a debt crisis, contrary to what they make us believe. I don’t know what they are going to do because the world is warning us and the world is heading into another recession,” Fasua added.
According to the Central Bank of Nigeria, the federation’s gross revenue fell by 11 percent year-on-year and 15 percent month-month to N799.6 billion, highlighting the continuing fiscal pressures on the Nigerian economy, according to analysts at the FBNQuest Capital who believe that the government’s fiscal strains are exacerbated by low oil revenue.
The gross revenue represented a shortfall of 22 percent compared with the pro-rata monthly budget benchmark of N1.02 trillion. After deductions and transfers, and some additional revenue, mainly from excess non-oil sources, the balance left for distribution to the three tiers of government amounted to N575 billion.
The sharp fall in the gross federally collected revenue was mostly attributable to lower oil revenue. Oil’s share of gross revenues fell to a paltry 26 percent of total receipts compared with 35 percent the previous month, and 41 percent in the year-earlier period.
On a month-on-month basis, oil revenue fell by 37 percent m/m (44 percent y/y) to N208 billion. It was also well below the budgeted monthly benchmark of N506 billion.
Underpinning the drop in oil revenue were declines of 36 percent and 44 percent m/m in revenues from petroleum profit tax as well as royalties and domestic crude oil and gas sales. Similar to the previous month, there were no receipts from crude oil and gas exports.
The dwindling revenue from oil sales reflects low crude oil production attributable to crude oil theft and pipeline vandalism. According to some estimates, these leakages amount to around 20 percent of the nation’s daily oil output.
Fasua is worried that Nigeria’s oil sector has collapsed. With production now just close to one million barrels a day, and a shortfall of about 300 to 400,000 barrels per day (bpd) on OPEC quota, there is no way the country will not face a revenue crisis, he said.
He cited Tony Elumelu, who bought an oil well with a capacity to pump 100,000bpd, but by the time it goes through the pipeline, just about 2,000 barrels is realised at the end of the day. “So, if somebody is losing 98 percent of his revenue, how does he survive?” he asked.
“The entire pipeline has been compromised; that’s why despite the increases in crude oil price globally, we are not making anything, and because the government has lost capacity to even police the pipelines, everything has gone to the dust,” Fasua said.
Non-oil revenue, which makes up almost 74 percent of the total, decreased marginally by 4 percent m/m to nearly N591 billion. However, on a year-on-year basis, it was up 11 percent and outperformed the monthly benchmark by about 14 percent.
The major driver behind the month-on-month reduction in non-oil revenue was a 34 percent month-month drop in company income tax. However, revenues from some non-oil headline items such as customs and excise duties and value-added tax also declined by between 2 percent and 5 percent.
On a positive note, the Federal Government’s independent revenue increased by 33 percent m/m to N167 billion.
“Despite high oil prices, we anticipate that the fiscal strains will continue because of limited oil production and the government’s continued provision of fuel subsidies for gasoline, which consumes a sizable portion of the earnings from crude oil exports,” the FBNQuest analysts noted.
The Debt Management Office (DMO) said on Wednesday that low revenue was boosting government appetite for more borrowing.
The debt office was reacting to a statement credited to a member of the Monetary Policy Committee (MPC) of the CBN.
At the last MPC meeting, Robert Asogwa, an MPC member, said the escalating fiscal sector deficits with the attendant rising debt ratios are part of the weak links in the domestic economic environment.
“Already, Nigeria is being mentioned by the IMF as one of the countries that may likely move into debt distress, given the staggering $100.07 billion dollars of public debt stock as at March 31, 2022,” he said.
Another member, Adeola Adenikinju, lamented that the fiscal performance of the government remained alarming.
According to him, the government deficit position worsened in March 2022 relative to a year earlier, as increased government expenditure outpaced government revenue.
Adenikinju expressed concerns that Nigeria is not able to benefit maximally from the current upsides in the global oil market.
“Governments should divert to non-debt means of funding its activities. Government must grow its revenue base, reduce waivers to economic agents, plug leakages and wastes, and address the wasteful petrol subsidy system,” he said.
On what should be done, Fasua should work on the revenues “because there is so much that can be collected.”
“But if they are giving waivers on import and other things to their friends and connected political people, then this is what you get. They have to block it entirely; no waivers for political reasons,” he said.
“Number two, the Federal Inland Revenue Service, and their operatives seem rather lenient on taxpayers, and of course there is corruption there too. Operatives will rather go and make a deal with taxpayers than asking for tax,” he added.
